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Friday, June 4, 2010

Agricultural producers are being hit with yet another rising input cost plus a lot of decision making uncertainty surrounding the emergence of superweeds immune to Roundup.

Though this story has been known for some time, the June 4, 2010 WSJ did a front page article titled Superweeds Hit Farm Belt, Triggering New Arms Race by Scott Kilman. This is an important story. The issues resulting from Roundup resistant weeds will shake some of the efficiencies out of the modern industrialized agriculture system itself.

Roundup Ready corn, soy, and cotton have been the norm in America during this past decade. The seeds are used for 90% of soy and 80% of corn plantings. Roundup is used four times that of any other herbicide. But, nine weeds, including pigweed, horseweed and Johnsongrass, on millions of acres in more than 20 states in the Midwest and south have now developed immunity to Roundup. It was fun and easy while it lasted, but it didn't last long, did it?

Every ag investor's poster-child for performance, Monsanto, has had a tough year. Its stock is down 39%. The Roundup patent expired years ago and now cheap Chinese versions compete on international markets. High priced GMO's haven't been embraced by seed buyers due to reaching a price-backlash breaking point this year. And now this. Resistant weeds popping up everywhere.

The WSJ article uses, as an example, an Arkansas cotton and soybean farmer who resorted to employing a crew of 20 laborers to attack weeds this year, plus a return to the use of the old highly toxic weed killer, paraquat. The cost of eliminating weeds on farms such as this has doubled in just a few years.

When given a choice, farmers will pay more to reduce weeds rather than return to hand removal methods.

There is a new race under way for development of new seeds and chemical combinations. DOW is working on seeds which resist the 65-year-old 2-4-D. Spray drift from the toxic 2-4D will kill grapes and other desirable nearby crops. It is also said to disrupt hormones in trout, rodents and sheep.

Another chemical, dicamba will kill the weeds, but also kills the soybeans, so Monsanto is at work making a dicamba-resistant soybean. Bayer is working with isoxaflutole. Syngenta is testing Callisto use with soybeans. Dupont is working on soybeans and corn which can resist both Roundup and other herbicides.

Monsanto is also considering offering an inexpensive chemical to Roundup users to supplement Roundup and kill the resistant weeds. After the Monsanto monopoly-like system has been in place for so long, these aforementioned companies are eager to regain market shares and see the failure of Roundup as a great opportunity.

In a nutshell, more and more weeds are growing resistant to Roundup. The current Monsanto agricultural model has allowed for larger and larger farms run with less and less labor, even less fuel. Consequently, we've adopted policies which have price supported overproduction and mega farms.

Now that farmers are looking towards returning to the use of more toxic chemicals to sterilize fields again, such as 2-4-D, I would assume that watchdogs and a few policy makers will be questioning every step of the system. Some producers may choose to return to the old method of hired hand removal instead (think teenagers or migrant workers).

Smaller farms and less production of corn, soybeans and cotton may result. Also, for a few years, U.S. input costs may escalate while other regions do not, making the cost of production lower in South America, for example. U.S. rising input costs will include new GMO seeds, chemicals, labor, and fuel. The volume of chemical use will potentially become much greater, more toxic, and more expensive.

That, to me, suggests, that in combination with our fragile economy, stronger dollar, potentially higher future fuel prices, and prospects for (most likely) lower commodity reimbursement, production will be forced to decline to essential levels at some point in the future.